The Correct Way Of Trading Fair Value Gaps

ICT methodology for identifying, framing, and trading Fair Value Gaps with optimal entry points

Fair Value Gap Definition

"one candle two and three if the market has moved lower this Candlestick in the middle that is your kind like your trigger candle that's the one you're watching to see stay open number two candle is where your stop loss is the conservative stop the number one candle is where your stop loss is"

"if you're drawing this fair value Gap here you can't just use the wick the wick like that it's not valid that's valid because you're you're taking in consideration that the difference between the two bodies that they are not touching so you have to have all the way down to the previous candle or number one candle"

Volume Imbalance Consideration

"if there is is a volume aboundance which is a separation between the previous candle body and the next candle that makes the fair value got that little separation always include that you'll have better determination of the consequent encroachment level which is important like that's that's your most important level"

Fair Value Gap Structure

Three Candle Fair Value Gap Structure BEARISH FVG Candle 1 (Stop Loss) Candle 2 (Trigger - Watch to Stay Open) FAIR VALUE GAP Consequent Encroachment (Midpoint - Most Important Level) Upper Half Lower Half (Ideal Entry) Candle 3 (Entry Candle) Entry: High of Candle 3 (or 1 tick below) BULLISH FVG Candle 1 (Stop Loss) Candle 2 (Trigger - Watch to Stay Open) FAIR VALUE GAP Upper Half (Ideal Entry) Lower Half Candle 3 (Entry Candle) Key Timing Rule "as soon as the next candle number four opens you have a valid reason to anticipate a return back up into that fair value gap"
CANDLE NUMBERING SYSTEM
  • Candle 1: "number one candle is where your stop loss is"
  • Candle 2 (Trigger): "this Candlestick in the middle that is your kind like your trigger candle that's the one you're watching to see stay open"
  • Candle 3 (Entry): "this Candlestick number three this is your entry that candlestick's high or one tick below it"
  • Candle 4 (Validation): "as soon as the next candle number four opens you have a valid reason to anticipate a return back up into that fair value Gap"

Bearish Fair Value Gap - Shorting Setup

Ideal Entry Location

"if we're bearish the ideal optimal entries are going to be formed at the lower half why because you want to see the upper half this level up to this candlesticks low stay open because if it does that means you have a very strong probability that you're right and you're going to be on side"

Consequent Encroachment Priority

"you want to see the consequent encroachment in the lower portion traded to and that's your best entry because you want to see the upper half of it left open and if it does it means it's really really bearish"

Premium Entry Allowance

"if it trades up in the upper half and other words it does this now we're up an upper region now I have a real deep deep deep premium I'm trying to sell at an extremely high price as long as it's spending time up in here and it keeps tapping and if it shows the body staying inside of this candlestick's low number one candle's low I will allow it to Wick through that and it's okay for it to do that"

Stop Loss Placement

"my stop loss is going to be resting one tick Above This candlestick's high it's going to take a real move to disrupt that"

Premium Pricing Target

"if it's going to trade and above the midpoint it's giving me a real high premium price what price level am I going to aim for there the upper quadrant level"

Bullish Fair Value Gap - Long Setup

Ideal Entry Location

"the ideal entries are going to form in the midpoint of the Gap to number three candle low and you want to see that lower half stay open not traded to"

Scaling In Strategy

"it can Wick down in there if it does trade to the midpoint I'm going to add more if it trades down to the lower quadrant I'm going to add more if I can see it touch this down here I'm going to add more I'm going to keep adding to that because my stop loss is going to be below Candlestick number two's low"

Best Case Scenario

"the best buys are in that upper half of that fair value Gap because we want to see this portion any Candlestick that drops down in there we don't want to see it spending a lot of time in there we want to see one at most two times better if it's just once entering it like that"

Confirmation Signal

"if you can start the run after going in just the upper half feel confident that the lower half stays open for your benefit of knowing that you're on side"

Lower Half Staying Open

"did it leave the lower half of that Gap open yes it did it didn't even touch the middle uh encroachment level so what does that mean it's bullish"

Inefficiency Model & Confidence Building

Half-Way Rule

"as it moves further and further and further away from the fair value Gap I'm telling you that fair value gaps and anything that acts like an inefficiency"

Confidence Increase

"your your confidence should increase and your level of uncertainty or the trepidation that you feel about potentially getting stopped out it should be minimized as it moves further and further and further away from the fair value Gap"

Fast Movement Signal

"soon as the Candlestick creates the fair value Gap if the next candle number four drops in and he starts running chances are stronger that this lower half will stay open"

Fast Track Indicator

"when they give it to you right away that means it's going to be on a fast track to get somewhere quick"

Algorithm Confirmation

"that's how you know behind the scenes the algorithm is saying all right anybody that knows this information quote unquote smart money you're listening to them they're going to expect that that's not going to trade lower"

Wicks as Inefficiencies

Wicks Work Like Fair Value Gaps

"if the wick is going to be bullish we want to see the upper half of the wick keep price from trading into the lower half of the wick regardless if the wick is above a candle's body or below a candle's body it's the same thing"

Premium vs Discount Arrays

"if it's above market price then that Wick is going to be a premium array if it's below price then it's going to be a discount array"

PD Arrays Application

"if it's a discount array the same thing I'm teaching you about the fair value Gap my PD arrays work with the Wix the same way"

Consequent Encroachment of Wicks

"what do we have in price what's what's in this area right here what do you see see that big wick this Candlestick leaves this inefficiency so it's failed because it's in the lower half now"

"it's reasonable to anticipate it to do what trade down to this candlestick's midpoint or consequent encroachment to do what to send price higher because this is a discount array"

Timing Rules & Opening Range

First Fair Value Gap Rule

"it can't be on your 9:30 candle it can only appear at 9:31 or after so this is your very first first Fair Val Gap"

Opening Range Gap - 70% Rule

"70% of the time it's not 100% 70% of the time mid Gap gets hit within the first 30 minutes"

"you're always looking for an opportunity for it to try to get to the halfway Gap so consequent caching of the opening range Gap in my mind that is my always first draw I want to see that because there's a 70% chance that's likely to happen"

Macro Time Window

"what time is this Candlestick when it would it gave you a buy based on everything we've been talking about in this live stream it's 950 what is that macro time 10 minutes to 10 to 10 minutes after 10 that's your macro it's going to do what run to inefficiency or run to liquidity"

First 30 Minutes Targeting

"the targeting aspect of what you're looking for from where you expect price to run from to where it's going to gravitate to in that first 10 I'm sorry first 30 minutes to 10 o'clock"

Study & Review

Click each card to reveal the answer from the transcript

What is Candle 2 in a Fair Value Gap and what is its role?
"this Candlestick in the middle that is your kind like your trigger candle that's the one you're watching to see stay open"
For a bearish Fair Value Gap, where is the ideal entry location?
"if we're bearish the ideal optimal entries are going to be formed at the lower half why because you want to see the upper half this level up to this candlesticks low stay open"
For a bullish Fair Value Gap, what do you want to see happen with the lower half?
"the ideal entries are going to form in the midpoint of the Gap to number three candle low and you want to see that lower half stay open not traded to"
What is the most important level in a Fair Value Gap?
"you'll have better determination of the consequent encroachment level which is important like that's that's your most important level"
When can you start anticipating a return to the Fair Value Gap?
"as soon as the next candle number four opens you have a valid reason to anticipate a return back up into that fair value Gap"
How should you draw a Fair Value Gap when there's a volume imbalance?
"if there is is a volume aboundance which is a separation between the previous candle body and the next candle that makes the fair value got that little separation always include that"
Where is the stop loss placed for a bearish Fair Value Gap setup?
"my stop loss is going to be resting one tick Above This candlestick's high"
What percentage of time does mid gap get hit within the first 30 minutes?
"70% of the time it's not 100% 70% of the time mid Gap gets hit within the first 30 minutes"
What does it mean when the lower half of a bullish FVG stays open?
"did it leave the lower half of that Gap open yes it did it didn't even touch the middle uh encroachment level so what does that mean it's bullish"
What does it signal when Candle 4 immediately runs after creating the Fair Value Gap?
"soon as the Candlestick creates the fair value Gap if the next candle number four drops in and he starts running chances are stronger that this lower half will stay open"
How do wicks function in relation to Fair Value Gaps?
"if the wick is going to be bullish we want to see the upper half of the wick keep price from trading into the lower half of the wick regardless if the wick is above a candle's body or below a candle's body it's the same thing"
When can the first Fair Value Gap appear on the trading day?
"it can't be on your 9:30 candle it can only appear at 9:31 or after"
What is the scaling strategy for a bullish Fair Value Gap?
"if it does trade to the midpoint I'm going to add more if it trades down to the lower quadrant I'm going to add more if I can see it touch this down here I'm going to add more"
What should happen to your confidence as price moves away from the Fair Value Gap?
"your your confidence should increase and your level of uncertainty or the trepidation that you feel about potentially getting stopped out it should be minimized as it moves further and further and further away from the fair value Gap"
What does fast immediate movement from a Fair Value Gap indicate?
"when they give it to you right away that means it's going to be on a fast track to get somewhere quick"